Base metals house of the year: BOCI

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Base metals house of the year: BOCI

Participants in base metals markets have faced an array of challenges over the past year, from price volatility and regulatory changes to supply chain disruptions, economic uncertainty and the London Metal Exchange nickel crisis. Throughout this time, BOC International (BOCI), the investment banking arm of the Bank of China, stepped up its base metals offering. Adapting quickly to changing market conditions, it was able to structure numerous innovative risk management and financing solutions and provide much‑needed liquidity. 

The firm expanded its product offerings to include a wider range of base metals, increased its options offerings and structured deals with foreign exchange and physical delivery components. This increased focus on base metals paid off, with profits up 104% in 2022 versus 2021, and revenues continuing to rise in 2023. In the 12 months from March 2022, trading volumes in the firm’s physical repo finance deals increased by 143%. 

Lei Yao, BOCI
Lei Yao, BOCI

“The team has demonstrated its ability to adapt quickly to changing market conditions and proactively manage risks, mitigating potential losses for clients,” says Lei Yao, chief executive officer of BOCI Global Commodities UK. “By leveraging deep market knowledge, strong risk management capabilities and our extensive network, we’ve been able to navigate these very challenging conditions.”

BOCI, which has a strong presence in Hong Kong, London, Singapore and Shanghai, has been offering base metals products since 2012 and now has an extensive suite of products, including hedging solutions, structured products and physical trading, all of which can be tailored to meet clients’ needs. 

For example, unlike exchange products, BOCI’s over-the-counter products can be denominated in various currencies, including renminbi, to mitigate FX risk. As an investment bank, BOCI is also able to take ownership of physical metals, while being part of the Bank of China gives it the financing capabilities of a commercial bank.

“We can structure deals so that, for example, we can hold the physical stock ourselves for the client if they don’t need to sell immediately, releasing funds to help with the financing burden,” says Yao. “This gives a lot of flexibility to our clients.”

An example of a recent bespoke transaction is a deal the team conducted with a leading Chinese manufacturer of electric vehicle battery materials. The firm wanted to hedge its exposure to the copper and nickel market. The team developed a bespoke hedging strategy that utilised both exchange-traded and OTC derivatives and included physical delivery. 

This tailor-made approach required BOCI to fully understand its clients’ businesses and risk models. An important development for the metals team last year was the establishment of a total risk control model that helps clients understand and mitigate their exposures and also provides BOCI with the confidence it needs for its own risk management. 

The total risk control model looks at credit, operational and market risk from the client’s point of view. As well as using financial reports to glean relevant data, the model includes a vast array of rich data collected as a result of conversations and physical meetings with clients. Over the past 12 months, for example, Yao visited 18 downstream metals production sites in Korea and 12 upstream refiners and smelters in China to better understand their business models and challenges.

“It’s all about knowing your clients, understanding their risk models and what they are doing,” says Yao. “This gives us confidence from a risk management point of view as well.” 

Another key area for the team has been harnessing advanced technology to optimise its trading and risk management capabilities. As well as investing in cutting-edge, know-your-customer technology, the team continued enhancing its digital trading platform that provides clients with real-time pricing, execution and risk management tools. 

“The platform has been well received by clients, with direct market access trading volumes increasing by 40% in 2022 versus 2021,” says Yao.  

The firm’s client relationship management team, which was set up to improve customer service and responsiveness, was particularly useful in 2022 when international travel was still severely restricted. “Our dedicated client relationship management team was able to strengthen our relationships with our clients, even when we couldn’t meet in person,” says Yao.

These various enhancements have been appreciated by clients. Peng Du, head of trading at the Jinchuan Group, said BOCI has consistently demonstrated expertise and commitment to client service. “We have benefited greatly from BOCI’s market insights and trading capabilities,” he says. “BOCI has also shown a strong commitment to physical markets and industry developing, which aligns with our own values.”

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